A leading Chinese economic commentator has called for the adoption of a range of measures to improve the ability of monetary policy to influence credit extension.
Zhang Tao (张涛), currently head of the financial departments at China Construction Bank (CCB), said in an article published by Sina that the transmission efficiency of Chinese monetary policy still suffers from problems.
“Declining policy rates on the foundation of ample liquidity perhaps are unable to fundamentally reverse the situation of weak demand for finance, and will also be unable to reverse the situation of the accumulation of funds within the banking system,” wrote Zhang in an article entitled “Increases to the Transmission Efficiency of Monetary Policy Require More Extra-Monetary Support” (货币政策传导效率的提升需要更多货币之外的支持).
“This means that the transmission of monetary policy still faces the problem of poor efficiency.”
Zhang published the article following a contraction in Chinese lending in the month of July, as well as significant easing in the growth of household debt.
Data from the People’s Bank of China (PBOC) indicates that new renminbi lending totalled 679 billion yuan for July, 404.2 billion yuan less than the print for the same period last year. Total social financing was 756.1 billion yuan for July, representing a decline of 319.1 billion yuan compared to the same month of 2021.
“As of the end of July, household debt financing growth fell to 5.2 trillion yuan a year, for a decline of 3.3 trillion yuan compared to the same period last year, and the 16h consecutive month of decline,” wrote Zhang.
“Additionally, out of the increase in credit for enterprises in July, 46% consisted of bills financing, reflecting that there is no ongoing rise in enterprise financing.”
These figures have since prompted the Chinese central bank to reduce the interest rates for its open market operations instruments by 10 basis points on 15 August. The move has brought the rate for the 1-year medium-term lending facility down to 2.75%, and the rate for 7-day reverse repos down to 2%.
Zhang called for the use of a greater range of policy tools to support the transmission effects of monetary policy in the Chinese economy.
“During a critical window for the setting of economic foundations, it is necessary to employ the role of non-monetary channels in helping to raise the transmission efficiency of monetary policy,” he wrote.
“For example, we can give consideration to increasing the intensity of fiscal subsidies and stabilising the rate of return on household assets, while also guiding commercial banks to increase loan extension, and expedite improvements to total social financing.
“Additionally, we should also improve the capital restraints on commercial banks as soon as possible.”
